Confusion surrounds new GET

The higher rate begins on Jan. 1 but for Oahu sales only

Winning approval for an Oahu-only general excise tax increase may have been the easy part.

Starting Jan. 1, the state's general excise tax (GET) will rise by half of one percent to support a mass transit system.

TAX FACTS

What tax: The general excise tax will go from 4 to 4.5 percent (a 12.5 percent increase) for taxpayers on Oahu.When: Jan. 1. It is expected to remain in effect for 15 years.How much it will raise: The Tax Review Commission estimates that if the tax had been imposed in 2006, it would have raised $196 million.For more information: www.hawaii.gov/tax

Estimated take for the first year: $196 million.

State tax officials and local businesses now are figuring out how to collect the tax and from whom.

On paper, the new tax is simple: the GET goes from 4 to 4.5 percent for people and businesses on Oahu. But the issue rapidly becomes complicated.

"People are bewildered. The rules are inconsistent because the whole thing is just one big political hot potato," says Lowell Kalapa, Hawaii Tax Foundation president.

For example, do attorneys with law offices in all four counties pay a higher GET only on Oahu? What about the tax on royalties for songs written on Oahu but performed on a neighbor island?

The new tax, at its simplest, according to the state tax department, is applied to "gross income and gross proceeds for sales of tangible personal property shipped or delivered to the Oahu district."

For retailers, the first calculation is just to add the new tax to their bill.

Steven Ai, president and CEO of City Mill Co. Ltd., says his company is already working to reprogram their computers.

"I can't speak if consumers are going to be buying more or less. It will be a price increase. People are able to adjust to their need," Ai said.

Although the GET officially rises from 4 to 4.5 percent, the actual increase will be from the 4.166 percent now charged to the new rate of 4.72 percent to allow retailers to recoup the cost of the tax.

So Oahu consumers will start the new year paying slightly more.

For instance, if someone is considering a new flat screen television priced at $1,550, the tax will go from $64.57 to $73.03.

A new $25,000 car will incur $1,178 in GET next year, instead of $1,041.50 now. Kalapa said the looming tax increase forced him to buy a new kitchen range now to save on taxes.

Republican Sen. Sam Slom, another tax critic, is urging Oahu consumers to make their major purchases this year.

"I expect there will be a buying spurt. If I were a retailer, I would be stressing buy now, before the tax increase," Slom said.

Retail Merchants of Hawaii President Carol Pregill said the tax increase could not have come at a more confusing time: a transition from the Christmas buying season to the 2007 accounting period.

"We are trying to reach as many retailers as we can because this has the ability to be a problem," Pregill said.

The state tax office has expanded its call center hours from 7 a.m. until 5 p.m. to help explain the GET. Taxpayers may call (808) 587-4242 or toll free at (800) 222-3229.

State Tax Director Kurt Kawafuchi said his office has tried to hold as many seminars as possible to explain the new law to the public.

Also, all registered businesses are being mailed notices about the tax increase.

But that may not be enough. Local real estate analyst Stephany Sofos said many small businesses are not thinking about the tax.

"We may need more education. For instance, the first payment to the state won't be due until the end of February, but they have to start collecting it on January first," Sofos said.

"And if a business doesn't collect it, they are still liable for the full amount," Sofos said.